The going concern assumption touches the measurement of every asset and the classification of every liability, and its consequences reach lenders, suppliers and employees well beyond shareholders. In its “Auditor – Audit Committee Interactions” series (No. 6, on SA 570 Revised), the National Financial Reporting Authority lists 35 potential questions an auditor should expect from the audit committee. They are suggestions for preparation, not mandatory requirements, and they assume the committee has already done its own review with management. This summary paraphrases them, grouped by situation.
No events or conditions identified
- Did you identify any events or conditions that may cast significant doubt on going concern?
- Were any indicators present but judged to be mitigated, and by what factors?
- Did anything during the audit make you revisit your initial going concern view, and how did you respond?
- Did you ask management about known events or conditions beyond the assessment period, and what was the answer?
- Did you evaluate the design and operating effectiveness of management’s going concern controls?
Events or conditions identified
6. Does management’s assessment cover the period the standard requires, or a shorter one?
7. If it was shorter, has management extended it, and is the revised period reasonable?
8. Has management told you of any events beyond its assessment period that may raise significant doubt?
9. Has management changed its assessment method since last year, and is the change reasonable?
10. Did you evaluate management’s process, its assumptions and the feasibility of its plans?
11. Did you test the reliability of the data and the support for assumptions behind cash flow projections (for asset sales, the buyer, market, valuation, realisable value and timing)?
12. How did management’s past forecasts compare with actual results?
13. Did you run sensitivity analysis, and are the critical assumptions reasonable?
14. Is the outcome of management’s plans likely to improve the situation?
15. For plans needing third-party agreement (asset sales, borrowing facilities, litigation), what evidence did you obtain?
16. Which parts of the assessment rest on management representations, and are they reasonable, especially on feasibility?
17. Are there existing or potential covenant breaches, and how did management and you assess their impact?
18. Did this work lead you to revise assessed risks or planned procedures elsewhere in the audit?
19. Where support from a parent, promoter or other party is critical: (a) did you get written confirmation of its terms directly from the supporter, (b) is the arrangement enforceable, and (c) can the supporter financially deliver?
20. In a group, are both standalone and consolidated statements prepared on a going concern basis, and if not, why?
21. For material subsidiaries, joint ventures and associates, is there evidence that cash flow assumptions are consistent with the going concern assessment, and how did you respond to any concerns?
Going concern appropriate, no material uncertainty, disclosure adequate
22. Was this a close call, and how did you arrive at that view?
23. If it was a close call, is management’s conclusion on disclosures reasonable?
Going concern appropriate, material uncertainty exists, disclosure adequate
24. Which events or conditions did you consider, and how did you conclude a material uncertainty exists?
25. Have you decided whether this is a Key Audit Matter, and why?
Material uncertainty exists, disclosure inadequate
26. What information is missing from the disclosure, and did management explain the omission?
27. Is the effect of the inadequate disclosure material, pervasive or both, and on what basis?
Going concern basis used but inappropriate
28. What evidence led you to conclude the basis is inappropriate, and how did management respond?
29. What is the impact of having used the going concern basis instead of another basis?
Going concern inappropriate, another acceptable basis used
30. Is the alternative basis management used acceptable in the circumstances?
31. Have you evaluated the adequacy of disclosures about the basis of accounting?
32. Have you decided whether an Emphasis of Matter is needed, and why?
Regulated entities
33. Is the company meeting the capital, solvency, liquidity or other prudential requirements that apply to it?
34. Are the disclosures on breaches or potential breaches of prudential norms adequate?
35. Is any change in law, regulation or government policy expected to adversely affect the company?
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FCA, CWM (AAFM-US), CBV, CIFRS, R-ID, B.COM (H), RV* (IBBI)
Managing Partner at Ankit Gulgulia & Associates, Chartered Accountants. The Firm was setup in 2011 and has offices in Delhi NCR. AGA provides professional services to a large number of Clients both in India and Internationally.
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